Review of decision to take anti-dumping action against exports of certain washing machines from the Republic of Korea

INTRODUCTION

  1. As a member of the World Trade Organisation (WTO), Australia is bound by the World Trade Organisation Uruguay Round Anti-Dumping Agreement and Agreement on Subsidies and Countervailing Measures (the WTO Agreement). Article 2.1 of the WTO Agreement provides that a product is considered dumped, i.e. introduced into the commerce of another country at less than its normal value, if the export price of the product exported from one country to another is less than the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country. (The export price is the price paid before any costs in respect of the goods after exportation are included. Normal value is usually defined as the price at which a good would be sold in its home market.)
  2. Before any action may be taken against dumped goods, the Australian industry concerned must demonstrate not only that dumping is occurring, but that the Australian industry has suffered material injury as a result. This is done through an application to the Australian Customs Service (Customs) for an investigation into the facts of the case. If Customs determines that dumping has occurred, it must then establish whether the Australian industry's performance has deteriorated, whether any injury suffered would be considered material and whether the dumping has caused the material injury to the industry. Any injury that has resulted from other, clearly identifiable sources must not be attributed to the dumping. Regardless of whether it is found that dumping has caused material injury, it must also be determined whether future dumping threatens to cause material injury to the Australian industry. This includes an assessment of whether any changes in circumstances would make that threat of material injury both foreseeable and imminent unless anti-dumping measures were imposed.
  3. Under the provisions of the Customs Act 1901 (the Act), Customs has 155 days (or such longer period as allowed by the Minister) from the date of initiation of an investigation within which to make a recommendation to the Minister for Justice and Customs (the Minister) concerning the imposition of interim anti-dumping duty. On the basis of Customs' recommendations the Minister will then make a decision whether to impose definitive anti-dumping measures.
     

    THE ROLE OF THE TRADE MEASURES REVIEW OFFICER

  4. The Trade Measures Review Officer (the Review Officer) is appointed by the Minister to review certain decisions in relation to dumping matters. The Review Officer is an independent administrative appeal mechanism with no investigative function. The Review Officer may review a prescribed range of decisions made by the Minister or by the Chief Executive Officer (CEO) of Customs. Reviews are conducted only on application from relevant interested parties as defined in the Act under section 269ZX.
  5. Subdivision B of Division 9 of the Act provides for reviews by the Review Officer of certain decisions by the Minister, including decisions to take, or not to take, anti-dumping action under subsections 269TG(1) and 269TG(2) of the Act. Subdivision B also describes the procedures to be followed in the conduct of a review.
  6. An applicant must establish to the satisfaction of the Review Officer that there are reasonable grounds to warrant the reinvestigation of the finding or findings specified in the application. Section 269ZZG of the Act provides that the Review Officer must reject an application if satisfied that the applicant has failed to provide sufficient particulars in relation to the application, including particulars concerning the finding or findings to which the application relates, within the 30 day statutory period. Unless an application is so unreasonable that it may be rejected in the first instance, the Review Officer will accept it at face value and undertake an investigation. If an application is made by a party to the original decision, it will be assumed that the applicant has the right to request a review.
  7. Before conducting a review, the Review Officer must publish in a national newspaper a public notice indicating that the Review Officer proposes to conduct that review. Interested parties in relation to a reviewable decision by the Minister may make submissions to the Review Officer within 30 days after the publication of that notice.
  8. The Review Officer must make a report to the Minister on the finding(s) specified in the application by recommending either that the Minister affirm the reviewable decision or that the Minister direct the CEO to reinvestigate the finding(s) which formed the basis of the reviewable decision.
  9. In conducting a review, the Review Officer must only have regard to the information to which Customs had regard when making the findings set out in its report to the Minister.
  10. The Review Officer's report must be made at least 30 days after the public notification of the review but not more than 60 days after that notification - or such longer period as allowed by the Minister in writing because of special circumstances.
  11. If the Minister accepts a recommendation by the Review Officer to require the CEO to reinvestigate a finding or findings, s269ZZL prescribes that the Minister must, in writing, require the CEO to make further investigation of the finding(s) and report the result of that further investigation to the Minister within a specified period. In addition, the Minister must, by public notice, indicate acceptance of the Review Officer's recommendation, including particulars of the requirements made of the CEO.
  12. After receiving a report by the CEO in respect of a reinvestigation, the Minister must either affirm the reviewable decision or revoke that decision and substitute a new decision. The Minister must give public notice of that decision.
     

    BACKGROUND TO THE REVIEW

  13. On 25 June 2002, following an application by Fisher & Paykel Australia Holdings Ltd (F&P), Customs initiated an investigation into the alleged dumping of certain washing machines exported to Australia from the Republic of Korea (Korea).
  14. The goods under inquiry are fully automatic household washing machines, top and front loading, with a dry linen capacity of not more than 12 kilograms. The application excluded twin tub washing machines, combined washer/dryers and commercial washing machines.
  15. On 31 January 2003, Customs presented the Minister with its final report in respect of Customs' investigations and findings in relation to this matter.
  16. In its report to the Minister, Customs found that:
    • washing machines were exported to Australia from Korea by Daewoo Electronics Co. Ltd (Daewoo) and Samsung Electronics Korea (Samsung) at dumped prices;
    • washing machines were not exported to Australia from Korea by LG Electronics Inc (LG) at dumped prices; and
    • the Australian industry producing like goods suffered material injury in the forms of price undercutting, price depression, profits foregone and loss of profitability as a result of the washing machines exported from Korea at dumped prices.
  17. Accordingly, Customs recommended in its report to the Minister that anti-dumping measures be imposed against fully automatic washing machines not exceeding 12 kilograms capacity exported from Korea by Daewoo, Samsung and other exporters except LG.
  18. The Minister accepted Customs' recommendations on 9 September 2003.
  19. In October 2003, two applications were received by the Review Officer for review of the Minister's decision to impose anti-dumping measures in respect of washing machines exported to Australia from Korea. The applications were lodged by F&P and Daewoo.
  20. The Review Officer accepted both applications and, on 31 October 2003, a public notice of the Review Officer's intention to conduct a review in this matter was published. Interested parties were invited to lodge a submission with the Review Officer and submissions were received from F&P, Daewoo, LG and the Government of Korea.
  21. In this particular review, two extensions of 30 days each were granted to the Review Officer by the Minister in light of the complex and voluminous nature of the evidence and submissions to be reviewed and because of other unforeseen special circumstances.
     

    A LEGAL ISSUE

  22. Section 269ZZK of the Act specifies and delineates the information to which the Review Officer must have regard when formulating his report and recommendations to the Minister in the course of a review.
  23. The Act stipulates that the Review Officer "must not have regard to any information other than the relevant information". Relevant information is defined in the Act as "the information to which the CEO had had regard ?. when making the findings set out in the report?. to the Minister in relation to the making of the reviewable decision".
  24. In other words, the Review Officer, in conducting a review, is only able to take account of information that was available to Customs at the time that Customs reported to the Minister.
  25. In conducting reviews, therefore, the Review Officer collects no new data but confines himself to studying the information which was available to Customs at the time of the submission of Customs' final report to the Minister. Applicants for review may (and frequently do) point to particular errors they believe Customs made and the Review Officer of course considers these allegations carefully. However, the Review Officer also examines all other steps in the reasoning used by Customs in coming to the findings under review.
  26. As mentioned earlier, in this particular review, Customs provided the Minister with its final report and recommendations in respect of washing machines from Korea on 31 January 2003.
  27. As a result thereof, the Review Officer, in reviewing this case, is only able to consider information that was available to Customs at 31 January 2003. Any information provided to Customs or the Minister after that date cannot lawfully be taken into account by the Review Officer in conducting this review.
  28. Accordingly, for the purposes of this report, any reference to "the information available" to the Review Officer should be read as "the information available to Customs at 31 January 2003".
     

    THE REVIEW

  29. As mentioned previously, two applications were received by the Review Officer for review of the Minister's decision to impose anti-dumping measures in respect of washing machines exported to Australia from Korea. The applications were lodged by F&P and Daewoo.
     

    F&P's Application for Review

  30. The first application was received from F&P on 14 October 2003. A copy of the non-confidential version of F&P's application is at Attachment A to this report.
  31. F&P is an Australian manufacturer of washing machines and was the original applicant to Customs for anti-dumping action against the goods exported from Korea.
  32. F&P argued that the grounds that warranted the reinvestigation of the findings that formed the basis of the reviewable decision were that Customs:
    • erred in making adjustments for components in establishing a normal value for LG;

    • failed to take into account the correct level of trade;

    • erred in making adjustments for costs between the various LG divisions in order to establish a normal value;

    • erred in making an adjustment for all advertising;

    • failed to take into account that there was a relationship between LG and LG Electronics Australia Pty Ltd (LGEA) such that there was not an arm's length transaction;

    • failed to establish price undercutting for LGEA;

    • used a product dumping margin which led to an error in findings of dumping and termination;

    • erred in comparing models;

    • had not properly identified a non-injurious price (NIP);

    • had ascertained normal values incorrectly using a product margin; and

    • failed to provide parties access to relevant information.

  33. Further details on F&P's claims in its application for review are at Attachment A.
     

    The Review Officer's Assessment

  34.  The Review Officer's assessment of the above claims by F&P follows.

    Customs erred in making adjustments for components in establishing a normal value for LG
  35. In its final report to the Minister, Customs recommended mostly negative adjustments to normal values (i.e. reductions in domestic selling prices in Korea) under section 269TAC(8) of the Act to account for physical or specification differences between washing machines sold in Korea and washing machines exported to Australia. F&P argued that, to enable a fair comparison with export prices, the price of the domestic models in Korea should have been increased since washing machines exported to Australia included additional, more expensive components.
  36. On the basis of all the available information (see paragraph 29 above), the Review Officer is of the opinion that insufficient evidence had been collected by Customs to satisfactorily resolve this issue at the time of reporting to the Minister.
  37. Accordingly, the Review Officer recommends that the Minister direct the CEO to reinvestigate Customs' findings in relation to adjustments for components in establishing normal values for the goods under inquiry.

    Customs failed to take into account the correct level of trade
  38. Customs found no evidence that LG sold washing machines in Korea through distributors. LG stated that it sells washing machines to retailers only in Korea and Customs, during its normal value visit and investigation with LG in Korea, verified and accepted this proposition. By way of comparison, Customs also found in its visit to Daewoo that Daewoo sold washing machines in Korea to distributors and buying agents as well as to retailers.
  39. F&P has argued that LG's domestic sales in Korea included sales to distributors and wholesalers and that Customs had therefore failed to take into account the correct level of trade when establishing normal values for LG.
  40. The Review Officer has examined the available information and agrees with Customs' assessment that there is no evidence to indicate that LG's domestic sales were other than to retailers.
  41. Accordingly, the Review Officer recommends that the Minister affirm Customs' findings in relation to level of trade.

    Customs erred in making adjustments for costs between the various LG divisions in order to establish a normal value
  42. In its normal value visit to LG in Korea, Customs undertook an extensive and detailed investigation and verification exercise and collected all relevant data for the purposes of its inquiry. As part of this exercise, Customs was required to establish a suitable and reasonable methodology for allocating various overhead costs to the goods under inquiry. Such an allocation exercise is commonplace in dumping inquiries and Customs is well versed in these matters.
  43. F&P has queried the methodology Customs used to allocate LG's selling costs to domestic washing machine sales and has suggested that the methodology used by Customs could involve double counting.
  44. In essence, Customs allocated selling expenses to domestic washing machine sales in Korea by adding the direct sales commission expenses of LG's Washing Machine Division to a pro rata allocation of selling expenses from LG's Domestic Sales Division.
  45. This method of allocation of selling expenses appears perfectly reasonable to the Review Officer given that Customs scrutinised and verified the data it collected from LG. There is no evidence of any double counting.
  46. Accordingly, the Review Officer recommends that the Minister affirm Customs' findings in relation to adjustments for costs between the various LG divisions in establishing normal values.

    Customs erred in making an adjustment for all advertising
  47. In its report to the Minister, Customs recommended adjustments to normal values, to ensure fair comparison with export prices, for both LG and Daewoo in respect of advertising and sales promotion. F&P has argued that Customs should not have made an adjustment to normal values on this basis since "selling prices are set independent of the advertising overhead which may increase or decrease depending on what happens in the market. The selling price for a specific transaction is entirely insulated from general overhead expenses such as advertising?.".
  48. The Review Officer is of the opinion that advertising could possibly affect the price at which a product is sold, but this is certainly not always the case. Advertising can increase the demand for a product, which will result in an increase in the volume of sales of the product, but it will not necessarily cause an increase in its price. Moreover, advertising can influence demand for not only the product it is specifically targeting but for other products as well. Product specific and brand name promotion often complement each other in marketing.
  49. More importantly, in the context of establishing normal values, advertising costs are not a part of the terms and conditions of a sales transaction and as such they play no part in the price of products. Therefore, as a general rule, adjustments should not be made to normal values for advertising costs unless it can be clearly demonstrated that the advertising expense bears directly on the selling price of the goods.
  50. Accordingly, the Review Officer recommends that the Minister direct the CEO to reinvestigate Customs' findings in relation to adjustments for advertising and sales promotion in establishing normal values for the goods under inquiry.

    Customs failed to take into account that there was a relationship between LG and LGEA such that there was not an arm's length transaction
  51. Customs was satisfied that export transactions between LG and LGEA were arm's length transactions. It was acknowledged that LGEA is a wholly owned subsidiary of LG. However, Customs found no evidence of any consideration payable for, or in respect of, the goods other than their price and concluded that export prices were not influenced by the relationship between the two parties.
  52. F&P has argued, in essence, that, since LG reimburses LGEA for advertising costs incurred in Australia, the nature of the export transaction between the two entities is rendered non-arm's length. Customs was aware of the advertising reimbursement and considered that it did not render the sales non-arm's length.
  53. The Review Officer agrees with Customs' assessment of the relationship between LG and LGEA. As discussed earlier, advertising is an overhead expense which does not impinge on the selling price of the goods. Just as adjustments should not normally be made to normal values for advertising costs, similarly a reimbursement of advertising costs should not be seen as affecting the arm's length nature of transactions.
  54. Accordingly, the Review Officer recommends that the Minister affirm Customs' findings in relation to the arm's length nature of export sales between LG and LGEA.

    Customs failed to establish price undercutting for LGEA
  55. Customs found that the Australian industry's prices, and those of other importers of Korean washing machines (including LGEA), had been consistently undercut by the prices of Samsung and Daewoo washing machines. Customs did not find price undercutting by the prices of LG's washing machines.
  56. F&P has disputed this conclusion but has presented no evidence to support its argument.
  57. The Review Officer, having examined the available evidence, concurs with Customs' findings. Accordingly, the Review Officer recommends that the Minister affirm Customs' findings in relation to price undercutting by LGEA.

    Customs' use of a product dumping margin led to errors in findings of dumping and termination
  58. Customs used weighted average export prices and normal values of comparable models over the investigation period to assess dumping margins for each exporter for each model of washing machine. Customs then calculated a combined weighted average dumping margin for each exporter for all models, i.e. Customs established a weighted average product dumping margin (being a weighted average of the weighted average dumping margins for each model) for each exporter covering all exports of all models over the investigation period.
  59. F&P have argued, in essence, that the use of a product dumping margin by Customs as described above led to errors in findings of dumping since the averaging process subsumes and obscures individual dumping margins for different models, capacities and categories of the goods under inquiry. The applicant contended that dumping margins should be assessed according to comparable models rather than across all models and all capacities.
  60. Section 269TACB(2) of the Act describes the methodologies that may be used to calculate whether dumping has occurred and the levels of dumping once export prices and normal values have been established. The legislation affords the Minister a degree of discretion in this regard and there is no single, definitive method by which dumping margins must be determined. Of note is the fact that this section of the Act refers to (in respect of export prices and normal values and the comparison of these) "goods the subject of the application" and "like goods".
  61. In this particular case, the goods under inquiry (as described by the applicant, F&P) are "fully automatic household washing machines (top and front loading) with a dry linen capacity not exceeding 12 kg - the capacity being determined by standard AS/NZS2040".
  62. The Review Officer considers that Customs has determined dumping margins in this inquiry on a consistent basis in respect of different exporters and in accordance with the provisions of the relevant legislation.
  63. Customs did not terminate its investigation in respect of any aspect of the inquiry. In addition, F&P did not advance any specific argument or contention in respect of termination.
  64. Accordingly, the Review Officer recommends that the Minister affirm Customs' findings in relation to dumping and termination.

    Customs erred in comparing models
  65. During its investigation, Customs conducted extensive inquiries, both in Australia and in Korea, for the purposes of establishing export prices and normal values of comparable goods to enable determination of whether dumping had occurred and what (if any) dumping margins were in evidence. As part of this exercise Customs expended considerable time and resources to select (to the extent possible) suitably equivalent classes and categories of goods for comparison in this context. In addition, adjustments were made to normal values to take account of physical and other differences between models to ensure a fair comparison with export prices.
  66. F&P have suggested, without any specific evidence, that Customs' comparisons may not have been reliable.
  67. The Review Officer is satisfied that Customs undertook sufficient investigation and collected enough data to enable it to be in a position to decide on suitable models for comparison purposes and to make adjustments to normal values where necessary to ensure fair comparison between export prices and normal values. Scrutiny of the available information in this regard does not indicate that Customs has erred in its comparison methodology.
  68. Accordingly, the Review Officer recommends that the Minister affirm Customs' findings in relation to comparison of models.

    Customs has not properly identified a NIP
  69. Customs report states that "Customs calculated NIPs based on undumped prices from Korea, uplifted by the weighted average dumping margin of all dumped prices from Korea. NIPs for models not exported to Australia at undumped prices during the investigation period were calculated using a similar process to that used to calculate ascertained export prices."
  70. F&P reiterated its concerns at Customs' use of a product dumping margin as the basis for establishing NIPs. The company considered that Customs had erred in its approach in this regard since a NIP could not be properly applied using a product dumping margin. The applicant argued that Customs should have used a weighted average of the industry's unsuppressed selling prices for each category (of goods) as the basis for NIPs.
  71. The Review Officer, as explained in paragraphs 58 to 62 above, does not share F&P's concerns in relation to Customs' calculation of a product dumping margin in this case since the legislation allows discretion in this regard and Customs has acted lawfully in its choice of methodology to establish dumping margins.
  72. However, the Review Officer does have concerns about the methodology used by Customs to determine NIPs. It would appear that, to calculate NIPs for Daewoo and Samsung, Customs added the weighted average dumping margin of all dumped exports from Korea to the prices of undumped exports from Korea (presumably LG's prices). This is not logical. On a purely conceptual basis, if an export price is an undumped price, it is by definition a non-injurious price in the context of a dumping investigation. To then impose a dumping margin on an undumped price results in a nebulous and meaningless number which, again conceptually, can be seen to involve an element of double counting of the dumping margin (a dumped export price plus the dumping margin equals the normal value which is in itself both a non-injurious price and an undumped price).
  73. The reasoning behind Customs' calculation of NIPs for Daewoo and Samsung appears to be that, if undumped exports are sold into a market already affected by dumped prices, then prevailing market prices are suppressed because of that dumping. Therefore, if dumping were eliminated, market prices would be higher to the extent of the dumping margin that previously existed. Accordingly a NIP can be established by adding the dumping margin to the price of undumped exports.
  74. This logic is difficult to sustain. Firstly, why not add the dumping margin to the price of dumped exports? This would eliminate dumping and the resulting export price would be non-injurious. Secondly, the methodology adopted by Customs assumes that market prices in Australia are dictated by the price of dumped exports by Daewoo and Samsung. However, combined exports by Daewoo and Samsung hold less than 5 per cent of the Australian market and the available information indicates that market prices in Australia for washing machines are set by competition between F&P, Electrolux and LG. Moreover, it cannot be assumed that, in the absence of dumping, prices in Australia would be higher to the full extent of the dumping margin. Such an assumption is speculative and hypothetical and cannot be demonstrated to be true or based on fact. This is particularly the case in this inquiry where dumped exports hold such a small share of the Australian market - in these circumstances, were dumping by Daewoo and Samsung to be eliminated, prevailing market prices (dictated, according to the evidence, by F&P, Electrolux and LG) may not change at all; or they may increase to some degree, the extent of any increase being purely a matter of conjecture; or market prices may decline as the major suppliers compete for the market share held by Daewoo and Samsung before anti-dumping measures were imposed on their exports to Australia.
  75. As a result, the Review Officer considers that Customs has erred in its determination of NIPs in this instance.
  76. Accordingly, the Review Officer recommends that the Minister direct the CEO to reinvestigate Customs' findings in relation to determination of NIPs for Daewoo and Samsung.

    Customs has ascertained normal values incorrectly using a product margin
  77. Customs calculated a product dumping margin for washing machines exported to Australia at dumped prices by Daewoo and Samsung during the investigation period. Customs recommended that, for Daewoo and Samsung, normal values be ascertained by uplifting ascertained export prices by each company's product dumping margin.
  78. F&P claimed that this calculation was wrong and that normal values should not be based on a product dumping margin.
  79. The Review Officer has examined, and concluded on, the issue of product dumping margins earlier in this report (see paragraphs 58 to 62 above).
  80. The Review Officer recommends that the Minister affirm Customs' findings in relation to ascertained normal values.

    Customs failed to provide parties access to relevant information
  81. F&P claimed that, throughout the investigation, Customs' public file did not contain all relevant correspondence as required by the Act and the WTO Agreement. In particular, F&P complained that the public file did not contain Customs' responses to exporters and importers, that data on comparison of models was placed on the public file at too late a time to enable proper response and that meetings that Customs had with interested parties were not summarised on the public record. The company further claimed that this lack of transparency had limited the opportunity for F&P to be aware of, and respond to, information available to Customs and had inhibited F&P from making full representations to protect its interests.
  82. The Review Officer considers that the concerns raised by the applicant in this regard are administrative and procedural issues pertaining to Customs' manner of conducting inquiries and are not substantive issues of finding or fact. The Review Officer is not in a position to assess or redress these concerns.
     

    Daewoo's Application for Review

  83. The second application was received from Daewoo on 17 October 2003. A copy of the non-confidential version of Daewoo's application is at Attachment B to this report.
  84. Daewoo is an exporter of washing machines from Korea and anti-dumping measures have applied to Daewoo's exports to Australia since the Minister accepted Customs' recommendations in this regard on 9 September 2003.
  85. Daewoo stated, in essence, that the findings sought to be reviewed were Customs' findings:
    • in relation to the number of models examined for normal value purposes;

    • in respect of adjustments to normal values;

    • in relation to dumping margins for Daewoo;

    • in respect of price undercutting by Daewoo;

    • that the Australian industry had suffered material injury in the forms of price undercutting, price depression, loss of market share, profits foregone and loss of profitability, and under utilisation of capacity; and

    • that exports of washing machines to Australia by Daewoo were dumped and may be dumped in the future and because of that material injury has been and may continue to be caused to the Australian industry.

  86. Further details on Daewoo's claims in its application for review are at Attachment B.
     

    The Review Officer's Assessment

  87. The Review Officer's assessment of the above claims by Daewoo follows.

    The number of models examined for normal value purposes
  88. In assessing normal values for Daewoo, Customs established that Daewoo had sold 81 washing machine models on its domestic market during the period of investigation. For examination purposes, Customs reduced the number of models to 32 by eliminating discontinued lines, models with small sales volumes and models not exported to Australia. Customs reduced this sample by a further 19 models by discarding sales that were below cost and weighted average cost. Customs then determined normal values for Daewoo under section 269TAC(1) of the Act.
  89. Daewoo argued that Customs was not entitled to exclude domestic sales that were at a loss from its examination. Exclusion of these sales adversely increased Daewoo's normal values and the losses attributed to these sales were not correctly allocated by Customs since these losses were said to have arisen from interest expenses resulting from operational problems of the company in the past. Daewoo stated that its washing machines division was its most profitable division and that the company's financial problems arose from other divisions of the company. Customs had therefore erred in its allocation of sales, general and administration expenses.
  90. The Review Officer is of the opinion that Customs is certainly entitled to exclude certain domestic sales from consideration for assessment of normal values under section 269TAC(1) of the Act if they are unsuitable for that purpose. To be suitable in that context, sales are required, inter alia, to be arm's length transactions in the ordinary course of trade. Sales at a loss (section 269TAAD of the Act) are generally considered to be not in the ordinary course of trade and would therefore be unsuitable for normal value assessments.
  91. Further, the Review Officer does not consider that Customs erred in its allocation of general overhead costs to the products under inquiry. Customs has adopted a reasonable and consistent approach to pro rata allocation of these types of non-specific costs and the Review Officer agrees with the methodology Customs has used to allocate finance expenses in this instance.
  92. The Review Officer recommends that the Minister affirm Customs' findings in relation to the number of models examined for normal value purposes.
     

    Adjustments to normal values

  93. Customs recommended the following adjustments (under section 269TAC(8) of the Act) to normal values for Daewoo to ensure fair comparison with export prices:
    • credit terms;

    • level of trade;

    • physical (i.e. specification) differences;

    • after sales service;

    • sales promotion and advertising;

    • bad debts;

    • duty;

    • inland freight; and

    • port charges.

  94. Daewoo contended that the adjustment for physical differences was not properly reflected in the Customs calculation and that the adjustment severely penalised Daewoo and the figures were not correct.
  95. Having examined the available information and Customs' calculations in respect of physical differences, the Review Officer considers that Customs has adopted a reasonable approach to adjustments for this factor and agrees with Customs' conclusions.
  96. Daewoo further argued that Customs did not make a correct level of trade adjustment since domestic sales by Daewoo were to both retailers and distributors whilst exports were sold to distributors. The company considered that Customs did not correctly assess the level of trade difference between exports to distributors and domestic sales to retailers. Adjustments should have been made, it was said, to cover brand awareness as well as marketing expenses.
  97. The Review Officer considers that Customs examined this matter thoroughly and was well aware of the level of trade differences between domestic and export sales. Customs made level of trade adjustments on the basis of differences in pricing on the domestic market between Daewoo's sales to wholesalers and to retailers. The Review Officer agrees with this approach and confirms Customs' findings in this regard.
  98. Daewoo also argued that an adjustment for warehousing and inventory costs should have been made by Customs in establishing normal values. However the company conceded that it had been unable to properly quantify these costs in the time allowed in Customs' investigation. Daewoo did provide Customs with an estimate of these costs which, it argued, should have been taken into account by Customs.
  99. In its report, Customs stated that it was not satisfied with the estimated quantification of these costs by Daewoo and was also not satisfied that the price had been affected.
  100. The Review Officer, on the basis of the available information, agrees with Customs' conclusion in this regard.
  101. Accordingly, the Review Officer recommends that the Minister affirm Customs' findings in relation to adjustments for physical differences, level of trade and warehousing and inventory costs for normal value purposes.
     

    Dumping margins for Daewoo

  102. Customs found that washing machines exported to Australia from Korea by Daewoo were dumped and that the product dumping margin was in the range of 2 to 10 per cent.
  103. Daewoo have argued that a revised calculation of the dumping margin (based on normal values incorporating the adjustments referred to above) would be less than 2 per cent and that the investigation in respect of Daewoo should therefore have been terminated in accordance with section 269TDA(1) of the Act.
  104. As explained above, the Review Officer concurs with Customs' assessment of normal values for Daewoo and therefore confirms the dumping margins established for that exporter.
  105. Accordingly, the Review Officer recommends that the Minister affirm Customs' findings in relation to dumping margins for Daewoo.
     

    Price undercutting by Daewoo

  106. Customs, in its final report to the Minister, found that the Australian industry's prices were consistently undercut by the prices of (Samsung and) Daewoo washing machines.
  107. Daewoo has disputed this finding and has further argued that there is no evidence that any price undercutting by Daewoo's washing machines could have significantly affected market prices in Australia since the volume of its exports was less than 3 per cent of the market.
  108. The available evidence confirms Customs' findings that the prices of Daewoo's washing machines have consistently undercut the Australian industry's prices over the investigation period. The ramifications of this are considered in ensuing sections.
  109. The Review Officer recommends that the Minister affirm Customs' findings in relation to price undercutting by Daewoo.

    The Australian industry suffered material injury in the forms of price undercutting, price depression, loss of market share, profits foregone and loss of profitability, and under utilisation of capacity
  110. In its report to the Minister, Customs found that the Australian industry producing washing machines had suffered material injury over the period investigated in the form of:
    • price undercutting;

    • price depression;

    • loss of market share;

    • profits foregone and loss of profitability; and

    • under utilisation of capacity.

  111. Daewoo disputed this finding arguing that the Australian industry actually increased its sales during the period under examination and its market share declined by only a marginal degree. Moreover Daewoo maintained that there was no evidence of price undercutting by its exports and that the profitability of the Australian industry actually increased during the period by a substantial degree.
  112. The Review Officer has examined Customs' assessment of material injury in the light of all the available information.
  113. The Review Officer accepts Customs' findings in relation to price undercutting and price depression. The Review Officer also accepts Customs' findings that the Australian industry's sales increased over the injury period but it appears that the local industry's market share has also increased - the available data indicates that F&P's market share has remained relatively static over the period examined whilst Electrolux (the only other Australian manufacturer of washing machines) has gained market share.
  114. In relation to profits and profitability, Customs' report to the Minister concludes that the total profit of the industry increased moderately across the injury period.
  115. Customs, however, found that some rationalisation and demonstrated cost efficiencies had occurred in the industry and opined that, ordinarily, these cost reductions would have resulted in similar improvements in profits. Customs found that cost efficiencies had not been fully translated into profit improvements and that, in most instances, the improvement in unit profit was well below the amount of cost reduction. Customs concluded that, although the total profit of the Australian industry increased moderately over the injury period, the total figure is less than the industry could have expected given the cost efficiencies achieved by the industry. Customs therefore considered that the industry suffered profits foregone and loss of profitability.
  116. The Review Officer considers that Customs has erred in its analysis of profits and profitability.
  117. It is not uncommon for businesses to strive to achieve cost efficiencies but it cannot be said that ordinarily these cost efficiencies should result in similar improvements in profits. All other things being equal, realised cost efficiencies may improve the competitive position of a company but this may manifest itself in different ways. For example, in a highly competitive market (such as washing machines), cost reductions may result in a company reducing its prices in order to achieve greater sales and market share. If its competitors follow suit and reduce their prices, any increased profit that may be expected from increased sales may be dissipated. Certainly it cannot be argued that cost reductions should be expected to result in profit increases of the same magnitude (as Customs has concluded). Accordingly, the concepts of "profits foregone" and profits that "the industry could have expected given the cost efficiencies achieved" are nebulous notions that are based on hypothesis, conjecture and speculation and cannot be substantiated.
  118. More important, however, are the facts. Customs concluded that the total profit of the industry increased moderately across the injury period (emphasis added). The Review Officer's scrutiny of Customs' analysis indicates that this was indeed the case.
  119. In September 1990, the (then) Minister responsible for dumping matters issued a Ministerial Directive concerning material injury. In December 2000, that Ministerial Directive was affirmed by the (then) Minister for Justice and Customs.
  120. The Ministerial Directive, which remains in force, states that:

    "The Government expects that material injury, or the threat thereof, will only rarely be taken as proven when the Australian industry producing like goods has not suffered, or is not threatened with, a "material" diminution of profits..."
  121. Under the circumstances, and given the findings that the total profit of the Australian industry actually increased over the injury period, the Review Officer considers that it was not open to Customs to find material injury in this case. In fact quite the reverse is the case.
  122. Accordingly, the Review Officer recommends that the Minister direct the CEO to reinvestigate Customs' findings in relation to material injury.

    Exports of washing machines to Australia by Daewoo were dumped and may be dumped in the future and because of that material injury has been and may continue to be caused to the Australian industry
  123. Daewoo argued that the volume of its (allegedly) dumped exports of washing machines to Australia represented less than 3 per cent of the Australian market and could not have caused injury (and did not pose a threat of injury) in a highly competitive market where prevailing prices are dictated by competition between the major suppliers, F&P, Electrolux and LG.
  124. The Review Officer, on the basis of the available information, agrees with this argument. The Review Officer is also of the opinion that, on the basis of the available data, the Australian industry producing washing machines has not suffered material injury.
  125. Accordingly, the Review Officer recommends that the Minister direct the CEO to reinvestigate Customs' findings in relation to whether or not dumping has caused material injury.
     

    RECOMMENDATIONS AND CONCLUSIONS

  126. In conducting this review, the Review Officer has taken account of all the evidence available to Customs during the course of its inquiry as well as the arguments contained in applications and submissions presented to the Review Officer.
  127. The reviewable decisions of the Minister in this particular case are:
    • a decision by the Minister to not publish a dumping duty notice under subsection 269TG(2) of the Act in respect of goods exported to Australia from Korea by LG Electronics Inc; and

    • a decision by the Minister to publish a dumping duty notice under subsection 269TG(2) of the Act in respect of goods exported to Australia from Korea by Daewoo Electronics Co Ltd.

  128. The foregoing analysis shows that, in the opinion of the Review Officer, Customs' findings in respect of:
    • adjustments for components in establishing normal values for LG;
    • adjustments for advertising in establishing normal values for LG and Daewoo;
    • determination of NIPs for Daewoo and Samsung; 
    •  material injury to the Australian industry; and  
    • whether dumping has caused material injury to the Australian industry;

      need to be reinvestigated.
  129. Accordingly, the Review Officer recommends that the Minister direct the CEO of Customs to reinvestigate the matters referred to in the preceding paragraph.
 
Richard Oliver
Trade Measures Review Officer
Related Downloads
Review of a Ministerial Decision to take Anti-Dumping Action against exports of certain washing machines from the Republic of Korea - 1 March 2004